Claim against the Icelandic Guarantee Fund

The DNB and FSCS’s most rigorous claims can be estimated at around thousand billion ISK

The Dutch Central Bank (DNB) and the British Financial Services Compensation Scheme (FSCS), have filed suit against the Icelandic Depositors and Investors Guarantee Fund - TIF, before the District Court of Reykjavík. The DNB and the FSCS paid compensation to depositors in the Netherlands and the UK at the collapse of Landsbanki Íslands hf. (currently LBI hf.). The compensation was due to deposits in LBI hf.’s Icesave accounts in the Netherlands and the UK. The DNB and FSCS demand that the TIF be ordered to pay, or confirmation that the TIF was obligated to pay in full a minimum guarantee or up to EUR 20,887 per depositor, with interest and costs. The principal without interest and costs amounts to just under ISK 556 billion. The FSCS’s claim amounts to ISK 452.1 billion and the Dutch Central Bank’s claim amounts to ISK 103.6 billion. The court cases were filed on 28 November 2013.

Shortly following the fall of the Icelandic financial system, or on 27 October 2008 the TIF incurred a payment obligation with respect to LBI hf. Since the year 2008 there have been discussions between the Icelandic, UK and Dutch authorities and their respective guarantee funds regarding responsibility for Icesave deposits. Agreements between the countries were rejected twice in a referendum in this country. When it became clear that the issue would not be resolved by negotiation the TIF decided to commence disbursement of funds in accordance with law and as its payment capacity permitted. The TIF’s decision was approved in a board meeting on 8 September 2011 and creditors were invited to comment on the decision and the conditions which it entailed. The DNB and FSCS objected to the conditions set forth in the Fund's decision and rejected payment on the basis proposed by the TIF. Since then, the parties have exchanged letters and held several meetings that have not yielded results.

On 28 January 2013 the EFTA Court delivered its judgment, which determined that the Icelandic Government is not responsible for TIF’s payments due to the Icesave deposits of LBI hf. in the UK and the Netherlands. The judgment also confirmed that Directive 94/19/EC of the European Parliament and of the Council on deposit-guarantee schemes was not designed to deal with the failure of an entire financial system, but applies to the failure of individual banks.

The TIF has at its disposal approx. ISK 18.2 billion which have been offered to the DNB and FSCS pro rata to each party’s respective claim in return for a transfer of claims. This amount represents the assets which were available at the fall of LBI and the amount has been segregated from other assets of the fund. The TIF considers the claims of both parties to have passed the period of limitations as TIF’s payment obligation was established five years ago. Should the courts not accept this TIF considers its payment obligation to be limited to the amounts which the Fund had at its disposal at the time the payment obligation was incurred. The DNB and FSCS’s most rigorous claims can be estimated at around one thousand billion ISK, with interest and costs. Should their claims be successful it is clear that the TIF will have difficulties in fulfilling its primary obligation of guaranteeing deposits in Iceland in the future. It should be noted that both the DNB and FSCS disbursed funds to depositors in their countries on their own initiative and without a request or consent of the TIF.

TIF has instructed attorneys Gunnar Vidar and Karl Axelsson from LEX Law Offices to lead the defence before the District Court of Reykjavik.